Equity/Depreciation vs. MPG

[Crusader]

I believe this topic has been discussed before as part of previous car discussions, and I sort of brought it up in that discussion of the guy being talked out of the truck. I know we should have as low equity in a car as possible and highest MPG possible, but I kind of want to flip that on its head. I know we look at the price of the vehicle for how much we are willing to drain into it and mpg for maintenance. But realistically from roughly crunching my own numbers on depreciation, maintenance, insurance, and repairs with average 15,000 miles on a vehicle per year, MPG is the bottom of that list. Granted, do not exacerbate the costs with low MPG, but it should not have you get something that raises the other numbers. Though early Prius kind of buck what I say, a good used truck, with higher durability, low maintenance, low depreciation, but higher buy in and low MPG could make a case for a good vehicle.

This is assuming lower than average driving, buying the right brand and model, and proper maintenance you can take very little to no depreciation and only pay for the fuel costs, insurance, and little maintenance that far overshadows any depreciation and fuel savings on most new vehicles and possible some used vehicles.

Just something I have been meaning to discuss on. I just wrote an rough and extreme example, but the main discussion I want to have is equity/depreciation vs. mpg.

[Drifterrider]

Depreciation is never a consideration on a car.  I never intend to sell it before I wear it out.

MPG is the first consideration (that gets my attention first) followed by fit and function (is it comfortable and will it do what I want it to do).

With today's cars easily going 100,000 miles before needing major work, my decision is really, can I stand to drive this car for 10 years or more?  Then, I buy something used.

[Fastfwd]

I don't drive a lot so for me MPG is even less important but my spreadsheets have also shown that depreciation is what I really have to look at and maybe repair costs which keeps me away from German cars. Just look at crowdsourcing; people with no money drive old beaters with terrible MPG because that's all they can afford to keep on the road.

Also one thing to look at are tires. I had a pickup before and got tires for it that were winter rated but also could be used in summer and were 18/32" when new. Most car tires are just 10/32" when new so they won't last as long and I have yet to find a car tire that is winter rated and usable in summer without premature use.

[Fastfwd]

Depreciation is never a consideration on a car.  I never intend to sell it before I wear it out.

The price you buy it vs the time you keep it is still depreciation. It's just that you pay it all upfront instead of getting some back at the sale.

[ender]

I just did some basic math for this:

Fuel costs are a relatively small percentage of most cars operating expenses, particularly ones which are already getting 25+ MPG. Run the math, the incremental effect is fairly meaningless.

If you are driving 1000 miles a week, you will buy 24 gallons (at 42 MPG) or 28.5 (at 35 MPG). Gas where I live has averaged around $2/gallon for quite some time, which means over the course of a year, you would only save $450 in gas.

However, that's driving ONE THOUSAND MILES A WEEK. If you drive a far more normal 14k miles/year, you're looking at 333 vs 400 gallons a year worth of gas - or around $134/year difference.

Depreciation is never a consideration on a car.  I never intend to sell it before I wear it out.

MPG is the first consideration (that gets my attention first) followed by fit and function (is it comfortable and will it do what I want it to do).

With today's cars easily going 100,000 miles before needing major work, my decision is really, can I stand to drive this car for 10 years or more?  Then, I buy something used.

If depreciation is never a consideration, do you buy the most expensive vehicle you can afford (whatever gets the highest gas mileage)? I'm assuming you don't, meaning you care about depreciation. Depreciation to zero is still depreciation.

But realistically from roughly crunching my own numbers on depreciation, maintenance, insurance, and repairs with average 15,000 miles on a vehicle per year, MPG is the bottom of that list. Granted, do not exacerbate the costs with low MPG, but it should not have you get something that raises the other numbers.

While this is true mathematically (you aren't including transaction costs for upgrading to a higher MPG vehicle, such as sales tax, either), emotionally it's not.

Buying a car for MPG while ignoring these factors is the MMM equivalent of the debt snowball. Sure, it's mathematically better to pay high interest off first or to keep a lesser MPG vehicle (most often).

But emotionally, MPG will feel a lot more impactful because you feel it every time you put gas into your car. You don't feel the depreciation cost every time or the registration/insurance cost every time.

[Drifterrider]

Depreciation is never a consideration on a car.  I never intend to sell it before I wear it out.

The price you buy it vs the time you keep it is still depreciation. It's just that you pay it all upfront instead of getting some back at the sale.

If you want to split hairs, depreciation is a not cash expenditure and only applies to tax forms(income type).  This is why individuals cannot take "depreciation" on their personal vehicles. 

What you really mean is a loss of market value which I never consider because I don't buy with the intention of selling and I keep them as long as it is running (or can be economically repaired). 

[dcheesi]

I don't drive a lot so for me MPG is even less important but my spreadsheets have also shown that depreciation is what I really have to look at and maybe repair costs which keeps me away from German cars. Just look at crowdsourcing; people with no money drive old beaters with terrible MPG because that's all they can afford to keep on the road.

Also one thing to look at are tires. I had a pickup before and got tires for it that were winter rated but also could be used in summer and were 18/32" when new. Most car tires are just 10/32" when new so they won't last as long and I have yet to find a car tire that is winter rated and usable in summer without premature use.

[emphasis mine]

But that doesn't necessarily mean that it's the most cost-efficient option for someone with more means. It could just be an example of Vimes' Boots Theory in action: the desperately poor can't afford the up-front cost of a better car, so they buy cheapest thing that will get them to work in the short term, even though doing so may cost them more in the long run.

[TheAnonOne]

I don't drive a lot so for me MPG is even less important but my spreadsheets have also shown that depreciation is what I really have to look at and maybe repair costs which keeps me away from German cars. Just look at crowdsourcing; people with no money drive old beaters with terrible MPG because that's all they can afford to keep on the road.

Also one thing to look at are tires. I had a pickup before and got tires for it that were winter rated but also could be used in summer and were 18/32" when new. Most car tires are just 10/32" when new so they won't last as long and I have yet to find a car tire that is winter rated and usable in summer without premature use.

[emphasis mine]

But that doesn't necessarily mean that it's the most cost-efficient option for someone with more means. It could just be an example of Vimes' Boots Theory in action: the desperately poor can't afford the up-front cost of a better car, so they buy cheapest thing that will get them to work in the short term, even though doing so may cost them more in the long run.

Depreciation in this case is just 100% of the total purchase price, so it is taken into account either way. You wouldn't buy a $550,000 car if it got 400MPG, or even, a $75,000 car that got unlimited(TESLA)

Plus, MPG only matters if you drive with any regularity. I drive about 30miles a day, so it matters a bit. Though, total purchase price for me is still a bigger deal. Gas costs are just not high enough to care about 30 vs 34 for instance. As in, would you pay an extra $500 for 1MPG? What about $2500? $5,000?

[tooqk4u22]

I don't think this should come into play when buying a new vehicle.  But it has come into view for me with my existing vehicle.  I have a low MPG vehicle that I purchased when I was quite a bit more spendy, and certainly well before MMM came into the fold.  So for me, here I stand with a 10 year old vehicle that is well depreciated but has relatively low miles. I know the history and have maintained it.

For me, it doesn't makes sense to trade into a comparably valued vehicle to get better mileage because I would most likely be trading into something with much higher mileage, possibly lower overall quality, and I would have no knowledge of the history.

If I drove a lot, it might be a different decision. 

[Syonyk]

OP: Have you actually maintained a truck?  They don't tend to be cheap.  My local NAPA used to apologize every time I had to buy parts.

And 15k miles/yr is well above average.

At low annual mileage, yeah, MPG doesn't matter that much.

[bilmar]

If you intend to keep the vehicle for its lifetime as I have done for my last 3 vehicles then you need to rethink 'depreciation' as 'how long will it last'.

A cheap vehicle that falls apart in 5 years or 100K miles my not be as good a deal as another that lasts 10 years.

The trouble is that there are few metrics on long term durability for non-commercial vehicles and since chassis rusting away  does not seem to happen any more then the lifetime decision becomes  very subjective - when it gets too tatty + maintenance costs get too frequent/high.

I suppose you could look at  Third World countries for clues to what  models really last but I suspect that cheaper will be on-par with  better/more expensive.

Bill